Pre-merger Earnings Management: Sarbanes Oxley, Leverage and Non-cash Acquisition Premia

The objective of this thesis is to investigate earnings management within a structured sample design focusing upon a M&A context in the US by addressing three main empirical questions in three studies. The first study examines whether firms near M&A manage their earnings and whether this practice has changed after Sarbanes-Oxley Act (SOX). The second study investigates whether debt-financing has implications on event-specific earnings management. Finally, the third empirical study challenges the effectiveness of earnings management in a M&A context by proposing that acquirers’ pre-merger earnings management can be uncovered and adjusted by the transacting targets. The key findings of the first study in this research suggest a strong tendency on the acquirer’s side to manage their earnings upwards before completing non-cash deals, while weak evidence is reported on the target’s side. More importantly, pre-merger earnings management does not seem to be significantly different between pre- and post-SOX eras, despite the assertions that the enactment of SOX was aimed at improving the reporting quality and the containment of earnings management practices. Given that SOX led to stronger due diligence and a more intense use of advisors for M&A deals, it could be argued that the setting of M&A activity creates a greater opportunity to manage earnings, given that managers’ resourcefulness for planning and altering accounting numbers is exclusively much greater in the case of M&A after SOX. However, this finding could be a consequence of employing cross-sectional accruals’ models, by which earnings management is detected relatively to the average level of normal accruals in peer firms at the time of estimation, whilst peer firms’ in general have adopted conservative reporting policies since the enactment of SOX. The second study reports a strong inverse relation between the pre-merger income-increasing earnings management levels and the industry-adjusted leverage of the non-cash acquiring firms, which is consistent with Jensen’s (1986) control hypothesis. This evidence highlights the importance of the industry-adjustment for leverage proxies in earnings management studies and proposes the use of structured sampling designs that controls for the firms’ motivation to manage earnings. The second study’s contribution leads to a better understanding of how a firm makes an accounting choice when it does favour one choice for its economic incentives but at the same time it is under creditors’ monitoring pressures. The third empirical study provides robust evidence of a positive relation between acquirers’ pre-merger earnings management and the non-cash acquisition premia. This evidence contributes to the existing literature by suggesting that even if the managerial team has succeeded in manipulating what is reported on paper, it may actually fail to influence the users’ perceptions - especially the sophisticated ones. The evidence challenges the naive investors’ hypothesis of Sloan (1996), which has been repetitively assumed by several studies in contexts where equity shares are issued

Financing Higher Education Institutions: Experience of the Jordanian Public Universities

This paper investigates the financing options available to the public Higher Education Institutions (HEIs) in Jordan. By referring to the extant literature as well as to the legislative framework in Jordan, a quantitative research instrument is designed for collecting data over five years (2009-2013) from the financial departments of 10 Jordanian public universities. The results suggest that public universities are significantly dependent on internal sources of finance rather than external ones to back their ongoing operations. On average, 77% of the total revenues of HEIs are generated from tuition fees, whereas governmental subsidies make around 13% of their total revenues. The findings of this study reveal that the administrators at the public HEIs experience fundamental challenges to secure sustainable sources of finance, namely: the limited operational income capacity generated from research, consultation, and teaching activities; the irregularity of the received governmental aid; and exhibiting shallow and modest investment strategies. The study reports significant associations between the universities’ size, age and location and their revenue structure. There are implications to the policy makers and regulators in the HE sector since the ramifications of the findings are intense on the HEIs, not only because their advance is pulled back, but also because their survival on the long run is challenged. Key words: Finance Options; Revenue Structure; Public Sector Accounting; Jordan; Government Subsidy; Public Universities

Bidder Earnings Management, Cynical Targets and Acquisition Premia

Mergers and acquisitions are the result of negotiations between bidder and target managers and shareholders where both sides have incentives to manipulate the value of shares and assets. While a naive target investor may perceive higher share value for a bidder who engages in income increasing earnings management, an informed target would recognize that the impact of such management is transient. In this paper, we find that non-cash acquirers that adopt income-increasing pre-merger earnings management pay higher acquisition premia in completing their M&A deals. However, there is no significant relationship between earnings management and acquisition premia in cash bids, and evidence suggests that there is no significant incremental impact of bidder earnings management on premia for stock transactions versus cash transactions. Our results support the cynical investor hypothesis, which posits that target management and its financial advisors are suspicious of bidders with low earnings quality and are able to detect and thwart bidder earnings management schemes designed to obtain a lower acquisition price in stock transactions. The results are counter to the naive investor hypothesis

The impact of COVID-19 on supply chains: systematic review and future research directions

The purpose of this research is to investigate how COVID-19 impacted supply chains and to develop future research directions from thereof. Using a systematic literature review methodology, this study analyzes publications on Google Scholar and Scopus that explored the impact of COVID-19 on supply chains. The research thoroughly reviews and analyzes a total of 95 studies that were found relevant and significant. COVID-19 had a significant impact on supply chains and organizations a like and therefore the study has revealed the following findings. Although some scholars claim that the pandemic revealed the fragility of supply chains, brought many logistical activities to standstill, and completely disrupted markets, but other researchers found that it has also created unlimited opportunities for organizations and industries. This review concluded that extant of literature falls into four themes; those who believe that COVID-19 was a complete threat, researchers who believe that it was both a threat and opportunity, those who believe it created enormous opportunities and lastly scholars who proposed a model that can help mitigate the impact of the pandemic on supply chains. This study opens the door wide for other researchers to explore how COVID-19 pandemic impacted supply chains positively and negatively across many industries and contexts. The study also provides an easy reference for business managers who are interested in knowing what would be the consequences of such pandemic on their organizations and how to take the right decisions that can help mitigate the many threats while at the same time maximize any opportunities created

Firm Investment Efficiency and Auditor Perception of Dividend Policy Changes

This paper examines how auditors assign fees to dividend initiations conditional upon the investment opportunities available to the firm. We examine whether auditors perceive a positive signal arising either from managerial confidence in sustainable future cash flow or from a reduction of risk associated with agency problems due to over-investment. Our results show that a dividend initiation appears to moderate the perceived risk of asset misappropriation, in the sense that initiators with a greater propensity to over-invest exhibit lower audit fees than nonpayers. Further, auditors appear to price the risk of dividend-paying firms, which already mitigate over-investment and discretionary cash flow hazards, higher than for firms that initiate dividends, suggesting that the fee reduction for initiators is also related to the signal of their sustainable cash flows and commitment to reduce discretionary use of liquid funds. We find additional evidence for signaling in that under-invested initiators are assessed lower fees. Both signaling and agency theory support auditors’ lower perceived risks of dividend initiating firms, but the strongest evidence of perceived lower audit risk is in firms with the potential for agency problems

Firm Investment Efficiency and Auditor Perception of Dividend Policy Changes

This paper examines how auditors assign fees to dividend initiations conditional upon the investment opportunities available to the firm. We examine whether auditors perceive a positive signal arising either from managerial confidence in sustainable future cash flow or from a reduction of risk associated with agency problems due to over-investment. Our results show that a dividend initiation appears to moderate the perceived risk of asset misappropriation, in the sense that initiators with a greater propensity to over-invest exhibit lower audit fees than nonpayers. Further, auditors appear to price the risk of dividend-paying firms, which already mitigate over-investment and discretionary cash flow hazards, higher than for firms that initiate dividends, suggesting that the fee reduction for initiators is also related to the signal of their sustainable cash flows and commitment to reduce discretionary use of liquid funds. We find additional evidence for signaling in that under-invested initiators are assessed lower fees. Both signaling and agency theory support auditors’ lower perceived risks of dividend initiating firms, but the strongest evidence of perceived lower audit risk is in firms with the potential for agency problems

Sustainable FinTech Innovation Orientation: A Moderated Model

Financial technology (otherwise known as FinTech) refers to a type of technology and innovation that tries to improve and automate the delivery and use of financial services. Despite the importance of this technology in people’s financial transactions in improving the management of their financial operations, processes, and lives, there is a lack of empirical evidence about sustainable FinTech services in the Jordanian context. Consequently, this research examines the factors that influence the acceptance of FinTech services, which have a variety of social, environmental, and ecological benefits. This study proposes an integrated model by combining the extended technology acceptance model (TAM) with the perceived enjoyment as an independent variable and electronic word of mouth (eWOM) as a moderator variable simultaneously. A total of 304 responses from Jordanian citizens were analyzed by the quantitative method of partial least squares structural equation modelling (PLS-SEM). The result confirmed that perceived usefulness and perceived enjoyment have a significant and positive influence on users’ decision to use FinTech services. Meanwhile, eWOM is found to moderate the relationship between perceived usefulness and Jordanians’ decisions to use FinTech services. Finally, this study provides practical implications for managers to encourage them to provide adequate, reliable, and sustainable services to their customers at a reasonable cost that fit their demands and ultimately improve their living standards. Current study limitations and future research directions are presented in the last section

Sustainable FinTech Innovation Orientation: A Moderated Model

Financial technology (otherwise known as FinTech) refers to a type of technology and innovation that tries to improve and automate the delivery and use of financial services. Despite the importance of this technology in people’s financial transactions in improving the management of their financial operations, processes, and lives, there is a lack of empirical evidence about sustainable FinTech services in the Jordanian context. Consequently, this research examines the factors that influence the acceptance of FinTech services, which have a variety of social, environmental, and ecological benefits. This study proposes an integrated model by combining the extended technology acceptance model (TAM) with the perceived enjoyment as an independent variable and electronic word of mouth (eWOM) as a moderator variable simultaneously. A total of 304 responses from Jordanian citizens were analyzed by the quantitative method of partial least squares structural equation modelling (PLS-SEM). The result confirmed that perceived usefulness and perceived enjoyment have a significant and positive influence on users’ decision to use FinTech services. Meanwhile, eWOM is found to moderate the relationship between perceived usefulness and Jordanians’ decisions to use FinTech services. Finally, this study provides practical implications for managers to encourage them to provide adequate, reliable, and sustainable services to their customers at a reasonable cost that fit their demands and ultimately improve their living standards. Current study limitations and future research directions are presented in the last section